Reform should begin with the recognition that the existing matching requirement of Medicaid has proved to be too erratic and unstable for both the federal government and the states. In a November 16 Washington Post article, “Facing Shortfalls, States Seek Emergency Aid From Washington,” California Governor Arnold Schwarzenegger nailed it when he said, “Government is really at fault, and this is why government has to get us out of this mess …”. While he was referring to the subprime mortgage meltdown, he could have also been referring to the crisis states are facing in Medicaid. But when it comes to Medicaid, states must accept a fair share of the blame for the “mess.”

Much like the private sector, state officials got themselves into “this financial mess” through the lure of easy money. When state officials had extra money, they were advised to put it into Medicaid so they could double (at least) their money with matching funds, courtesy of the federal taxpayers. Worse, the Clinton Administration helped state officials use phony financing in Medicaid in the 1990s as an “economic stimulus”. Lured by easy money and the matching arrangement -in which the more states spend in Medicaid, the more money they get from the federal government- states expanded the program beyond their means to pay for it. By the dawn of the 21st century, Medicaid had become a jobs program in disguise. Rules created by Congress and the Clinton Administration conferred protected status for certain special interests, particularly public institutional providers. Few states even contemplated any serious reform of the program, while lobbying for the “free money” from Washington.

Unfortunately for current governors, the Medicaid matching arrangement works against states when budgets are tight. In order to save state funds, states must also forfeit federal funds, making the total impact twice (at least) as great. Faced with unsustainable growth in Medicaid and shrinking revenues, states are again looking to Washington for relief. But rather than simply adding more taxpayer dollars, the federal government should provide real and last reforms. Giving states greater authority to make defined contributions for Medicaid populations into private options, including coordinated care programs, would save tens of billions of dollars and improve access to quality care.

The federal government generally provides roughly 60 percent of Medicaid funding. Medicaid is a battle ground for massive cost-shifting, which alternatively adds to the burden of federal and state taxpayers while not adding to the quality of patient care. Congress can and does cost shift to the states. Congress can add to Medicaid programs, fail to cover their cost, and shift more of the burden to the states. In return, the states try out various schemes to shift the rising costs back to the federal taxpayer.

Medicaid has become the single largest expenditure for many states and is now swallowing revenues that otherwise would have gone to education, transportation, public health or other publicly funded responsibilities, not to speak of the demands on taxpayers. Relief to the states should be real reform, and should not simply repeat the flawed cycle of additional Congressional spending.

Join The Discussion

It never ceases to amaze me, the amount of energy that can go into a project just to avoid doing the right thing. The best, simplest, least costly, most effective thing we could do is expand what has been working so well for years, Medicare. You get sick, you get care, and the caregiver gets paid. Nothing could be simpler.

Move all Medicaid patients to Medicare, and all private patients as well. It would be funded by the taxpayers and would be better than the $700B bailout we are now forced to pay for. It would also relieve all companies of their $6000 per year per employee health care premiums, thereby bailing out all industry, not just a few, and will encourage corporations to keep job in the US.

Of course, the insurance industry will not like this, as they currently drain 31% of healthcare costs without ever laying hands on the patient.

"America will always do the right thing, but only after everything else fails." Winston Churchill

It never ceases to amaze me, the amount of energy that can go into a project just to avoid doing the right thing. The best, simplest, least costly, most effective thing we could do is expand what has been working so well for years, Medicare. You get sick, you get care, and the caregiver gets paid. Nothing could be simpler.

I respond:

It never ceases to amaze me how grownups can fall for the false hope of something for nothing. See David M. Walker's fiscal reality tour. Medicare, social security and other socialist programs are laying a trap for the financial security of our nation. The more we use the force of government to transfer funds, even for "noble" purposes, the less responsibly they will be used, and the greater the financial hole we dig for future generations. When Medicare started, medicine was only 5% or less of our economy. Now it is almost 20%. True, SOME of this increase is due to greater wealth and technological advances, but much of it is due to 3rd party providers adding to the cost of medicine.

Jack:

Move all Medicaid patients to Medicare, and all private patients as well. It would be funded by the taxpayers and would be better than the $700B bailout we are now forced to pay for. It would also relieve all companies of their $6000 per year per employee health care premiums, thereby bailing out all industry, not just a few, and will encourage corporations to keep job in the US.

Me;

Oh, yes the government does a wonderful job-if you do not look too close. This ignores the cost of litigation and regulation. To merely shift the financial burden to taxpayers will not eliminate these costs, nor will it inspire efficiencies in the delivery of health care.

Jack:

Of course, the insurance industry will not like this, as they currently drain 31% of healthcare costs without ever laying hands on the patient.

Me: Is this ignorance or dishonesty here? Surely not all the cost of bureacracy in medicine is because of private insurance. MUCH of it is to satisfy both regulatory bureacrats and satisfy government funded payers.

Jack, there are some considerable holes in your logic. You need to be less selective of your use of facts.

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